Category: Gold Investment

Inflation is one of the most important indicators of a currency’s economic stability. The rate of inflation shows how quickly the economy is shifting and affects the purchasing power of many individuals. Inflation has an impact on almost everything related to money, from the price of your groceries to the interest rates on your bank accounts or loans. Currently sitting at just 2.1 percent, the current rate of inflation in the United States has a few people on edge. But should they be worried? The U.S. Money Reserve has gone into the statistics and looked at the evidence in order to find out.

But before we go into that, what exactly is inflation, and how can it affect the average person?

In brief, inflation is the rate at which the cost of normal goods and services in the economy increases over any given period of time, usually per year. The rate of inflation can be gauged in a few ways, but most commonly, it’s measured via the Consumer Price Index. The purpose of the CPI is to carefully track the cost of a vast multitude of items, most of which are everyday items which the majority of people regularly purchase. Whether movie tickets or coffee, a vast number of prices are checked for changes. The average rate at which those prices increase is considered the inflation rate. You’ll see inflation at work in nearly any situation that involves the usage of money.

How Does Inflation Affect You?

In short, a positive inflation rate means that, for the exact same goods and services, you’ll be paying more over time. For example, if twenty years ago, you could buy a hamburger for a dollar, but the same burger today costs you $1.25, then that’s inflation at work. Generally, inflation can be a dangerous thing for the average consumer and their wallet.

As written by John Rothans, a Master Numismatist with U.S. Money Reserve: “High inflation decreases purchasing power and undermines the value of money. Low inflation, however, suggests a dramatic collapse in the price of goods… and could trigger deflation and a broader recession.”

The Effects of Inflation on Interest Rates

A common sign of high inflation is an increased interest rate on loans, including home loans and credit cards. This overall increase in interest encourages less spending. While increased interest might sound like a good thing for your savings account, it only really matters if the interest on your savings account outpaces the national inflation rate. With the minuscule savings interest rates we see today, a savings account isn’t likely to completely protect your purchasing power.

How Can You Protect Your Purchasing Power?

Investment is one of the most often suggested solutions to protecting or even increasing your purchasing power, but if all your investments are tied to the dollar, then it isn’t really protecting your assets, it’s just hoping for your investments to grow faster than inflation. This is why you should diversify your portfolio, investing in foreign asset classes, commodities, natural resources, mining, companies in the United States which bring in offshore profits, and, perhaps most importantly, physical gold. Gold has consistently outpaced the inflation rate of the United States according to the World Gold Council, and it hasn’t just preserved the purchasing power of those who invested in it but increased it.